“Overall, this year we expect the trend in oil market balances at the aggregate level to be roughly similar to last year, in that global oil demand should continue to march higher, while non-OPEC supply (ex-Nort..

12 Jan 2013

Commodity OnlineCrude oil markets have started the year on a positive note, drifting marginally higher with front month Brent stepping out of its recent$108-111/bbl range. While the fiscal cliff agreement has cleared the macro cloud for now, there continues to be a lack of directional momentum for prices to move much further away from the $111/bbl mark, at least for now, with prices having retraced gains above $113/bbl by the end of the week.

On fundamentals, global demand continues to hold steady as seen in a healthy set of data from Asia over the past few weeks. South Korean oil demand is up 4% y/y. Part of the strength is because of the extremely cold and long winter the country has had over much of Q4.

The nuclear shutdowns for investigation have also contributed to a strong appetite for the rest of the energy complex, despite nationwide conservation measures initiated earlier on. Elsewhere in the region, the preliminary Chinese data for December point to demand growth holding up, while in Japan, although y/y growth rates have flat-lined, consumption remains on a high base.

On supply, third-party estimations of OPEC output show a sizeable reduction in volume in December.

The supply adjustment does not comeas a surprise in light of a much more balanced market than H1 2012. Also, this is inline with the tone of the recently concluded OPEC meeting which suggested a convergence to producing closer to the target rather than above it.

The third-party estimates showed a reduction in Saudi Arabian output over December. Iranian volumes have also dropped as the sanctions place a stronger grip on the country’s export outlets. Finally, Iraqi volumes were curtailed due to a combination of the KRG stopping exports in December, as well as bad weather at the Basra port, which restricted the usual flowof export loadings.'

Meanwhile, non-OPEC supply shortfalls have continued to build this week, owing to a combination of weather and geopolitical reasons.

“Overall, this year we expect the trend in oil market balances at the aggregate level to be roughly similar to last year, in that global oil demand should continue to march higher, while non-OPEC supply (ex-North America) should continue to disappoint, placing the call on OPEC crude at elevated levels.” the Bank said.

“While we expect geopolitical developments to become a major driver for the oil market in 2013, and in particular Iran’s external relationships, thus far developments have not created any ripples strong enough to disturb the market calm.” the Bank concluded.